Early in the fourth quarter, U.S. and international equities rebounded off their 2015 lows and then showed a great deal of volatility as they faded at the end of the year. However, while U.S. equities rebounded back towards their 2015 highs before fading, international equities never got anywhere near theirs. As a result, international equities posted negative returns for the year. For example, the Morgan Stanley All Country World Index ex-U.S. (MSCI ACWI ex-US) posted around a 5% loss, which was driven largely by the negative returns of emerging market equities.

With U.S. equities, the general trend was large company stocks outperforming mid- and small-company stocks in 2015. This was clearly evident in that the large company stock S&P 500 index returned a little over 1%, whereas the S&P 400 and S&P 600 indexes (mid-cap and small-cap indexes, respectively) both were negative for the year, losing around 2% each.

Fixed income in the U.S. was generally flat in 2015 but it finished with a negative trajectory due to the U.S. Federal Reserve’s finally raising interest rates. In addition, international bonds posted negative returns due to the strong dollar’s effect on foreign currency exchange rates.

A major cause of the fourth quarter volatility was the fluctuation in the price of oil, which, after seeming to stabilize around $45/barrel, continued its slide and ended the year around $37/barrel. A major contributor to the collapse in oil prices that began in 2014 was the increased output driven by technology and efficiency in the U.S. energy sector over the previous six or seven years along with reduced demand caused by China’s economic slowdown. It has been exacerbated by OPEC’s continued unwillingness to cut production to prop up prices in the face of an expanding oil glut.

Going forward, oil will continue to push volatility into the financial markets. Look for the price of oil to move around with geopolitical unrest, China’s slowing economy, and Iranian oil coming to market after sanctions are lifted sometime this year. Despite the expected fluctuation in the price of oil, the theme over the next few years, at least, will be lower oil prices.

A similar theme holds true with interest rates. The U.S. Federal Reserve Board will look to raise short-term interest rates, although the oil prices and China could reduce the number of rate hikes. Longer-term interest rates, however, will be tethered to the interest rates of other developed countries. That is, while the European Central Bank (ECB) has reduced its quantitative easing, it’s still intent on keeping interest rates low.

Expect the volatility we saw in the second half of 2015 to continue into 2016 with an upside bias. In addition, look for sustained, lower oil prices and a stronger dollar which will stimulate additional U.S. consumer spending in 2016. In addition, the U.S. economy should continue improving as should Europe’s, albeit a little slower.